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Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence

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  • Allen, Linda
  • Peristiani, Stavros
  • Saunders, Anthony

Abstract

Differences between large and small banks' net purchase behavior in the (uncollaterized) federal funds and (collateralized) repurchase agreements markets are documented. The larger a bank's asset size, the larger, ceteris paribus, its Federal Funds purchases. The threshold-asset size is in the region of $1 billion to $2.5 billion. For any size class, banks located in major banking centers are more likely to be net Federal Funds purchasers than are banks located outside money centers. In the collateralized repurchases agreements market, there appears to be no size of locational discrimination--indeed, the smallest banks are the largest net purchasers (as a fraction of assets) of funds on the repurchases agreements market. Copyright 1989 by the University of Chicago.

Suggested Citation

  • Allen, Linda & Peristiani, Stavros & Saunders, Anthony, 1989. "Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 62(4), pages 501-515, October.
    • Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:4:p:501-15
    DOI: 10.1086/296475
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    Cited by:

    1. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
    2. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    3. Thomas B. King, 2008. "Discipline and Liquidity in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 295-317, March.
    4. León, C. & Sarmiento, M., 2016. "Liquidity and Counterparty Risks Tradeoff in Money Market Networks," Discussion Paper 2016-017, Tilburg University, Center for Economic Research.
    5. Adam Ashcraft & James Mcandrews & David Skeie, 2011. "Precautionary Reserves and the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(s2), pages 311-348, October.
    6. Bech, Morten L. & Atalay, Enghin, 2010. "The topology of the federal funds market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5223-5246.
    7. Hugo Rodríguez Mendizábal, 2014. "Bank Size, Risk Diversification and Money Markets," Working Papers 785, Barcelona School of Economics.
    8. Brown, Craig R. & Griffiths, Mark D. & Hansen, Wayne E. & Winters, Drew B., 1999. "A profitable trading rule for net borrowers on settlement Wednesday," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(1), pages 129-146.
    9. Chen Zheng & Adrian (Wai Kong) Cheung & Tom Cronje, 2022. "The Impact of TARP Capital Infusion on Bank Liquidity Creation: Does Bank Size Matter?," International Journal of Central Banking, International Journal of Central Banking, vol. 18(2), pages 283-347, June.
    10. Carlos León & Javier Miguélez, 2020. "Interbank relationship lending in Colombia," Borradores de Economia 1118, Banco de la Republica de Colombia.
    11. Andrew H. Chen & Sumon C. Mazumdar, 1995. "Interest rate linkages within the EMS and bank credit supply," European Financial Management, European Financial Management Association, vol. 1(1), pages 37-48, March.
    12. Ben R. Craig & Yiming Ma, 2020. "Intermediation in the Interbank Lending Market," Working Papers 20-09, Federal Reserve Bank of Cleveland.
    13. Oet, Mikhail V. & Ong, Stephen J., 2019. "From organization to activity in the US collateralized interbank market," Research in International Business and Finance, Elsevier, vol. 50(C), pages 472-485.
    14. Pritsker, Matthew, 2013. "Knightian uncertainty and interbank lending," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 85-105.
    15. Matthew Pritsker, 2012. "Knightian uncertainty and interbank lending," Supervisory Research and Analysis Working Papers RPA 12-4, Federal Reserve Bank of Boston.
    16. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2008. "The price of liquidity: bank characteristics and market conditions," Discussion Paper Series 1: Economic Studies 2008,30, Deutsche Bundesbank.
    17. Martínez, Constanza & León, Carlos, 2016. "The cost of collateralized borrowing in the Colombian money market: Does connectedness matter?," Journal of Financial Stability, Elsevier, vol. 25(C), pages 193-205.
    18. Gong, Rui & Page, Frank, 2016. "Shadow banks and systemic risks," LSE Research Online Documents on Economics 105809, London School of Economics and Political Science, LSE Library.
    19. Miguel Sarmiento, 2019. "The Impact of Exogenous Liquidity Shocks on Banks Funding Costs: Microevidence from the Unsecured Interbank Market," IHEID Working Papers 01-2019, Economics Section, The Graduate Institute of International Studies.
    20. Bouwman, Christa H. S., 2013. "Liquidity: How Banks Create It and How It Should Be Regulated," Working Papers 13-32, University of Pennsylvania, Wharton School, Weiss Center.
    21. Gong, Rui & Page, Frank, 2016. "Shadow banks and systemic risks," LSE Research Online Documents on Economics 66044, London School of Economics and Political Science, LSE Library.
    22. Zheng, Chen & Cheung, Adrian Wai Kong & Cronje, Tom, 2022. "Social capital and bank liquidity hoarding," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    23. Fecht, Falko & Nyborg, Kjell G. & Rocholl, Jörg, 2011. "The price of liquidity: The effects of market conditions and bank characteristics," Journal of Financial Economics, Elsevier, vol. 102(2), pages 344-362.
    24. Giuseppe Bruno & Ernesto Maurizio Ordine & Antonio Scalia, 2005. "Banks� participation in the Eurosystem auctions and money market integration," Temi di discussione (Economic working papers) 562, Bank of Italy, Economic Research and International Relations Area.

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